Leaky building case making little progress

By GEOFF CUMMING

As a grievance industry, it bears comparison to Waitangi Tribunal claims - except in the size of settlements. The Weathertight Homes Resolution Service was the Government's attempt to sidestep the leaky buildings crisis: cheap mediation providing homeowners with an alternative to expensive, drawn-out court action.

But with more than 1900 active claims and homeowners waiting up to a year to be heard, the only people getting rich are lawyers.

Cabinet papers show the Government believed the service would be more efficient than litigation. It also kicked into touch the clamour for compensation from those who traced the problem to the Government's Building Industry Authority - which approved building methods including the use of untreated timber with monolithic cladding.

At the time, there was more than a suspicion that the Government under-estimated the scale of the crisis. Prime Minister Helen Clark dismissed the scandal as a Herald beat-up, accusing the newspaper of "banging on" about leaky homes.

She justified her attack by saying only 1000 people had phoned the Government's helpline.

It is now thought there are tens of thousands of leaky homes, with homeowners in denial or confused about their options, and many problems yet to emerge.

As service manager Lisa Ferguson puts it: "I don't think at the end of 2002 people thought we would get the number of claims we are still getting. There is no sunset clause in our legislation. I sense we will be in business for a while."

She says the service is getting more inquiries this year than last year, with more than 100 claims lodged in March.

Neither the courts nor the service is capable of delivering justice for all affected homeowners anytime soon. Using either option is a daunting, emotionally draining slog, say claimants and lawyers.

Just getting their day in court is fraught with hurdles - developers and builders simply wind up companies to escape liability.

"When we see a builder's in it we advise our clients the chances of recovery are not that great," says Auckland lawyer Bryan Easton. "The preferred defendants are the council because they are insured and can recover any judgments through rates."

Homeowners report waiting up to nine months to have their homes assessed by the service and more than a year for a hearing. Building industry sources say the service is gravely under-resourced.

But homeowners heading to court generally face an even longer drama. Easton estimates the cost of litigation at $40,000 to $50,000.

Ferguson says delays were inevitable for a disputes resolution service that started from scratch with few qualified assessors, mediators or adjudicators.

Now that it is up to speed - and about to open a new Auckland office - she promises to "start racking up the numbers".

But its track record gives homeowners scant encouragement. Of nearly 2300 claims received since opening in January last year, it has resolved 152.

Most have been confidential "no fault" settlements through voluntary mediation. Only 11 have been decided by an adjudicator, with settlements ranging from around $1500 to $107,000.

The only thing making progress, or so it seems, is the hidden rot.

"There's about a one in 50 chance of knowing there's a leak in a house," says building consultant Philip O'Sullivan. "Most people have a look at a house and are unaware of them.

"At the end of the day, the only way to tell is by drilling holes in them and cutting out sections."

He warns the most disturbing thing is that we have yet to see the full effects of the scandal.

"When you say leaky building, people think of buckets of water but you can be talking very small gaps. In many cases itstays in the wall cavity and doesn't come inside and the house owner is unaware of the problem. But if the framing is untreated, it's rotting away."

O'Sullivan says the risk factors with monolithic systems are now well-established. "You can go through the number of houses built that way and predict the failure rate and the cost of repair."

Claimants say many homeowners are still in denial, unable to come to terms with the task of getting their leaky home repaired.

"It's very, very difficult," says an owner in a terraced apartment block. "We've got retired people and we've got owners who put money into these apartments as their retirement fund. They may have to find $80,000 to reclad and run the risk they won't recover it."

With a $200 fee for mediation and $400 for adjudication, the weathertight service was conceived as a low-cost resolution service for homeowners who can take their own cases. But claimants who have turned up without a lawyer report being eaten alive.

"It's daunting - particularly when you're sitting across the table from nine of Auckland's best barristers and they're

playing hardball," says one claimant, who describes mediation as "a process of grinding people down".

those who have used the service give a mixed verdict. While some are happy, many emerge with sums far smaller than the cost of repairs.

Many applicants represent themselves because they are unlikely to recover the cost of a lawyer. But they routinely find themselves cross-examined by experienced barristers representing developers, builders and councils.

"Turning up without a lawyer is not in the real world," says a building assessor who would not be named.

Respondents bring their own assessors to challenge the weathertight service assessor's opinion on the repairs necessary and the costs involved. In most cases, the adjudicator has compromised.

Main respondents - usually the builder and/or developer - routinely cite subcontractors as co-respondents in an attempt to deflect blame.

"You can end up with nine or 10 respondents and it can be very difficult to pinpoint the cause and who is responsible," says the assessor.

Owners in multi-unit blocks have to lodge individual claims, effectively excluding body corporates representing large apartment complexes.

While several councils have been fined for signing-off deficient work, in other cases councils have escaped responsibility because builders used independent certifiers.

Claimants and lawyers say councils do all they can to delay proceedings and will ultimately cut a deal to avoid liability.

The Auckland City Council, the most affected local body, is named in 84 claims before the service and 54 court cases. None of the court actions has proceeded to trial.

"Councils will stall for time then, if you get a hearing date, they'll sit down and talk about it," says one lawyer. "They'll offer 65 cents in the dollar generally. The average person is going to accept."

The legislation also limits claims to weathertightness issues, limiting the scope for claimants whose homes have a range of other defects. O'Sullivan says adjudication decisions so far have been inconsistent. "Most have been too much one way or too much the other."

The requirements to prove negligence can be too harsh, he says. On the other hand, council building inspections have been condemned with the wisdom of hindsight. "Councils have been very slack, but the pendulum has swung too far."

With councils increasingly being found partly liable, nervous insurers are trying to drag in the Building Industry Authority as co-respondent.

But in the face of mounting criticism, manager Ferguson says a service that started with a handful of qualified assessors and mediators has made amazing progress.

"We've worked hard to get appropriately qualified people through the programme. The numbers are starting to improve in terms of reducing waiting times."

The service now has 63 assessors, seven adjudicators and about 20 mediators. "To get the expertise around these issues, when we started from a blank piece of paper, is a success I'm really proud of."

It is ushering in changes, including co-mediation - with two mediators running large or complex claims - and is about to open an Auckland office equipped to handle large multi-dwelling cases.

"We are quickly going to start racking up the numbers," Ferguson says. "In the next six weeks we have 203 claimants up for mediation. The act stipulates that claimants need to claim individually, but where they consent for information to be shared they can be treated as a multiple group."

Ferguson says the service is not a de facto advocate for claimants and the process takes time. "It's only after eligibility is determined and the claimant decides what to do that respondents are notified and we have to allow a reasonable time for them to seek advice and respond.

"It's a much bigger issue than anyone ever imagined."



LONG WAIT FOR JUSTICE


John Gray is counting the days until his weathertight service adjudication begins. The Ponsonby townhouse owner will represent his neighbours in the first multi-unit case to be heard jointly by the service which, until now, has made all owners in multiple blocks apply individually.

The group filed with the service in frustration at lack of progress through the courts, says Gray. He does not plan to take a lawyer into the hearing, although the group has access to legal advice.

"The system is set up so there's no surprises. We get to see [the respondents'] arguments before the hearing so we should be pretty well covered.

"It's time-consuming but it saves tens of thousands in legal fees. Although it's frustrating, the process is probably far more expeditious than in the courts and we are not exposed to the risks."

The townhouses, clad in stucco plaster and weatherboard, have serious problems with leaks through decks and plaster systems causing framing to rot, he says.



CHOICE: MEDIATE OR ADJUDICATE


How the Weathertight Homes Resolution Service works:

Homeowners can bring claims for repair costs and damages against developers, builders, architects, plasterers and any other parties thought responsible for leaks and resulting damage. They can also cite councils or independent building certifiers who signed-off shonky work.

Assessors inspect homes to identify the cause of leaks, who is responsible and what repairs are needed. If a case is deemed eligible, homeowners can choose mediation (where all parties must reach agreement) or adjudication (a hearing before an adjudicator with powers to apportion blame and decide who should pay and how much).

Owners of multi-unit developments must apply individually. Claims are confined to weathertightness issues defined in the Act which introduced the service.

Claimants and respondents can obtain costs only when they can prove bad faith or when allegations are without substantial merit.